So here's the deal. Wife has close to $50K in student loans to pay off. With the SL freeze we've been putting that "payment" into savings each month since this has started and we have more than enough, plus your normal 5 months savings left to completely pay off her loan when payments resume. Her interest is something like 6% so I have no desire to drag payments out any longer.

However, I also owe $30k on my truck loan at 2.5%. With the recession headed our way would it be dumb to pay off my truck and pocket that extra $600 a month payment for bills and the like Or should I keep that payment since interest is low on it?

Trying to decide the best route for our family with the crap economy on the way. I'm assuming cash is king and the more you have stockpiled the better?

Is interest still accruing on student loan debt or is that frozen?

I would not pay off a 2.5% car note. I'd pay the minimum on that.

Would use your lump sum as an emergency savings account if you are worried about a recession.

Interest is not accruing on the student loans.

I think my hesitation with that is I'm worried about what if's in the not so distant future about what's going to happen with our economy. Feel like the more money stashed away the better?

AustinCountyAg said:

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Interest is not accruing on the student loans.

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Well then, what does the 6% interest mean?

If you want to pay down debt, pay off the highest rate note first, then the next, then the next etc.

But the equation is different when the feds for some reason are still pausing interest on student loans 2.5 years after a pandemic and are touting loan forgiveness. It probably makes sense to pay the car loan down at this point, given the recent federal actions.

Side note: pausing student loan repayments is a huge contributor to the inflation we are experiencing. Kudos to Op for actually saving that money, but in my experience 80% of borrowers are just spending all that money and hoping the feds forgive their loans (I know one who has $100k+ (Sub $100k/yr job), hasn't paid one dime back and is hoping Biden forgives all of it).

The only arrow left in Biden's quiver is student loans, he will waive some before November thinking it will help him. It won't but he's unable to think on his own so it will happen anyway.

Ragoo said:

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AustinCountyAg said:

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I think my hesitation with that is I'm worried about what if's in the not so distant future about what's going to happen with our economy. Feel like the more money stashed away the better?

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in your OP you asked about using saved cash to pay off the truck so that you would have an extra $600 in monthly cash flow. $30,000/$600 is 50 months. You want to trade 50 months of cash for a single monthly recurring cash flow increase?

I gave you an option that allows you to have your cake and eat it too.

Keep your cash. You have enough to cover the highest interest loan to your names.

Stop saving towards it because you already have it "paid off".

Combine your monthly payments into the truck note. Debt snowball it. If something happens and you need the cash flow go back to the minimum payment.

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This.

You've already proven you are disciplined enough to save your money, so it is unlikely you are going to wake up tomorrow and spend it all on H&B. Certainly don't need to debt snowball it, since it is only 2.5%, but if you want to pay it down early vs. accumulating cash that is the best play here.

If you want to put your cash to work for you, throw $20k of it in I-bonds and let it earn some interest for a while.

Win At Life said:

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AustinCountyAg said:

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Interest is not accruing on the student loans.

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Well then, what does the 6% interest mean?

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6% interest when the loan is in an interest-generating phase. Federal loans are paused for everyone right now and not building any additional interest.

I'd just pay regular monthly payments on each (when due) With inflation as high as it is, you can't go wrong.

Also, in the off chance student loans are forgiven, you want to be able to harvest that benefit.

Just keep your cash, pay minimum until things are clearer.

JR

I am in a similar situation with a car loan at 2.25% and enough cash in a savings account at the same credit union to pay off the balance. The small amount I am paying in interest on the loan is basically me paying for the security of that extra cash in case I need it.

With 1 year CD rates starting to get over 2%, I might just start up a ladder with that money rather than pay off the note.

JRizzle said:

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I'd just pay regular monthly payments on each (when due) With inflation as high as it is, you can't go wrong.

Also, in the off chance student loans are forgiven, you want to be able to harvest that benefit.

Just keep your cash, pay minimum until things are clearer.

JR

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I agree with this. Even though inflation is here, I would keep higher cash balances to protect you during a recession. If interest isn't accruing on your student loans, definitely don't pay them off just in case you get a gift from the Prez.

One thing nobody has mentioned is that your truck will break down once its fully paid off. By paying the whole balance early you prematurely invite calamity unto your garage.

If you paid off your car loan, what would you fill with that extra 600 a month? A couple of nights out of eating? Some more furniture? A vacation?

Would you actually invest the extra cash? If you can't find a good investment path for your extra cash, it'll most likely get squandered on lifestyle inflation.

If your investments are making more than the interest on the truck note, just keep making payments. If they are not, either pay off the note or put your money somewhere that makes more than the interest rate on the note. Should be able to find something with minimal (not zero) risk.

You could take your trucks payoff amount and move it into a separate high yield savings account and have the payments drawn from there. That frees up that monthly amount in your budget, but you can easily claw the money back if the student loan becomes active again and you want to knock out the higher %. Your cost for doing this is the interest you'll pay vs actually paying it off outright (and potentially lost gains were you to invest that money that is now sitting in the high yield account), but the benefit is it is out of your monthly budget, but you don't actually lose the cash should something happen in the future that makes you want to move in another direction.

hold the cash, keep paying the truck as normal, start paying the regular student loan payments... Wait it out.

I'd save that cash for when you think the bottom hits and ride that puppy to the top... but I'd stay liquid for now.

Admittedly, I'm in the worst cash position I've been in along time due to some recent lump sum investments and buying a house in the last year. Paying off 0% furniture stuff that should be done in a year and have 2 car payments currently.

The student loan decision is expected to be announced by the end of the week. (although i'll believe it when i see it at this point). I would not make any decision until that point. You need clarity on (1) if any of the student loans will be forgiven for your family and (2) when is the interest rate freeze ending (could be as soon as August).

If student loans are not forgiven and interest rate freeze ends in August (worst case scenario), I would consider paying the loans off at 6%. I don't see the point in paying off a 2.5% car. if you think you might need that cash you've saved, maybe just start paying the minimum after August and take the 6% hit until year end. Lots of uncertainty right now, might be worth taking the L on 6% interest to get a better idea of where we stand. Feels like things will be clearer in 6 months.